Question 1

Which of the following are the criteria used to determine whether an item is extraordinary?

Accepted Answer

A)  It is unusual in nature and occurs frequently. 
B)  It is unusual in nature and occurs infrequently. 
C) It is unusual in nature or occurs infrequently. 
D) It is infrequent in occurrence only. 
A)  It is unusual in nature and occurs frequently. 
B)  It is unusual in nature and occurs infrequently. 
C) It is unusual in nature or occurs infrequently. 
D) It is infrequent in occurrence only. B

Question 2

The essence of nonrecurring items on an income statement is that they are not useful in predicting the future income of the reporting company.

Accepted Answer

A) True 
 B)False  True

Question 3

The Callie Company has provided the following information: Operating expenses were $231,000;
Cost of goods sold was $376,000;
Net sales were $940,000;
Interest expense was $32,000;
Gain on sale of a building was $76,000;
Income tax expense was $151,000.
What was Callie's income before taxes?

Accepted Answer

A)  $564,000. 
B)  $188,000. 
C) $377,000. 
D) $232,000. 
A)  $564,000. 
B)  $188,000. 
C) $377,000. 
D) $232,000. C

Question 4

A company has paid cash to repurchase its common stock that was previously issued. Where will this cash flow be reported on the statement of cash flows?

Accepted Answer

A)  Operating activities. 
B)  Financing activities. 
C) Investing activities. 
D) Stockholder activities. 
A)  Operating activities. 
B)  Financing activities. 
C) Investing activities. 
D) Stockholder activities.

Question 5

Intangible assets are reported on the balance sheet as a noncurrent asset and include goodwill.

Accepted Answer

A) True 
 B)False

Question 6

The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards Board (FASB).

Accepted Answer

A) True 
 B)False

Question 7

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.

Accepted Answer

A) True 
 B)False

Question 8

Describe the return on assets ratio and the DuPont approach for calculating return on assets.

Accepted Answer

The return on assets ratio is calculated

Question 9

The Nellie Company has provided the following information: Operating expenses were $115,000;
Gross profit was $629,000;
Cost of goods sold was $470,000;
Interest expense was $17,000;
Extraordinary loss was $29,000;
Income tax expense was $199,000.
What was Nellie's operating income?

Accepted Answer

A)  $514,000. 
B)  $468,000. 
C) $497,000. 
D) $298,000. 
A)  $514,000. 
B)  $468,000. 
C) $497,000. 
D) $298,000.

Question 10

Discontinued operations and extraordinary items are reported on the income statement as a component of income from continuing operations.

Accepted Answer

A) True 
 B)False

Question 11

Independent auditors are advisors who analyze financial statements and other economic information to formulate forecasts and stock recommendations.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is false?

Accepted Answer

A)  The board of directors meets with the external auditors to discuss management's compliance with their financial reporting obligations. 
B)  The external auditors are selected by the Securities & Exchange Commission (SE
C) . 
C) The Securities & Exchange Commission (SE
C)  requires publically traded companies to have their financial statements audited by an independent accountant. 
D) The external auditors assume some responsibility with respect to the fairness of the financial statements. 
A)  The board of directors meets with the external auditors to discuss management's compliance with their financial reporting obligations. 
B)  The external auditors are selected by the Securities & Exchange Commission (SE
C) . 
C) The Securities & Exchange Commission (SE
C)  requires publically traded companies to have their financial statements audited by an independent accountant. 
D) The external auditors assume some responsibility with respect to the fairness of the financial statements.

Question 13

External users of accounting information include decision makers such as investors, creditors, and financial analysts.

Accepted Answer

A) True 
 B)False

Question 14

Determine the effect of the following transactions on the financial statements components identified. Code your answers as follows:
A: If the transaction results in an increase in the financial statement component or ratio.
B: If the transaction results in a decrease in the financial statement component or ratio.
C. If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company sold inventory for an amount greater than its cost.
Gross profit_____
Current assets_____
Stockholders' equity_____
Transaction 2: Advertising expense was recorded but has yet to be paid for.
Net income_____
Gross Profit_____
Stockholders' equity_____

Accepted Answer

Transaction 1: A company sold inventory

Question 15

Twin Lakes, Inc. reported the following December 31 amounts in its financial statements: $$\begin{array} { | l | r | r | } 
\hline & \mathbf { 2 0 1 5 } & \mathbf { 2 0 1 4 } \
\hline \text { Sales revenue } & \mathbf { \$ 2 5 0 . 0 } & \mathbf { \$ 2 1 0 . 0 } \
\hline \text { Gross profit } & 75.0 & 68.0 \
\hline \text { Net income } & 28.0 & 21.0 \
\hline \text { Total assets } & 90.0 & 80.0 \
\hline \text { Total stockholders' equity } & 40.0 & 36.0 \
\hline
\end{array}$$ Compute the following for the 2015: 
A. Gross profit percentage
B. Net profit margin
C. Asset turnover
D. Return on assets

Accepted Answer

A. ($75.0 ÷ $250.0) = .30 or 3

Question 16

The gross profit percentage is calculated by dividing net sales by gross profit

Accepted Answer

A) True 
 B)False

Question 17

The Willie Company has provided the following information: Operating expenses were $345,000;
Income from operations was $215,000;
Net sales were $1,100,000;
Interest expense was $71,000;
Discontinued operations loss was $87,000;
Income tax expense was $58,000.
What was Willie's income before taxes?

Accepted Answer

A)  $144,000. 
B)  $57,000. 
C) $215,000. 
D) $812,000. 
A)  $144,000. 
B)  $57,000. 
C) $215,000. 
D) $812,000.

Question 18

The following information was taken from the income statement and balance sheet of The Mickey Company for the years 2014 and 2015: $$\begin{array} { | l | r | r | } 
\hline & \mathbf { 2 0 1 5 } & \mathbf { 2 0 1 4 } \
\hline \text { Sales revenues } & \mathbf { \$ 3 0 , 7 5 2 } & \mathbf { \$ 2 7 , 0 6 1 } \
\hline \text { Net income } & 2,345 & 1,267 \
\hline \text { Total assets } & 53,902 & 49,988 \
\hline \text { Total stockholders' equity } & 26,081 & 23,791 \
\hline
\end{array}$$ Compute the following ratios for 2015: 
A. Net profit margin
B. Asset turnover
C. and Return on assets

Accepted Answer

A. Net profit margin ($2,345 ÷ $30,752)

Question 19

Marino Company has provided the following information: Net sales, $480,000
Net income, $24,000
Average total assets, $200,000
What is Marino's asset turnover ratio?

Accepted Answer

A)  12.0 
B)  8.33 
C) 0.42 
D) 2.4 
A)  12.0 
B)  8.33 
C) 0.42 
D) 2.4

Question 20

Intangible assets have no physical existence and no life.

Accepted Answer

A) True 
 B)False

Which of the following are the criteria used to determine whether an item is extraordinary?

The essence of nonrecurring items on an income statement is that they are not useful in predicting the future income of the reporting company.

The Callie Company has provided the following information: Operating expenses were $231,000; Cost of goods sold was $376,000; Net sales were $940,000; Interest expense was $32,000; Gain on sale of a building was $76,000; Income tax expense was $151,000. What was Callie's income before taxes?

A company has paid cash to repurchase its common stock that was previously issued. Where will this cash flow be reported on the statement of cash flows?

Intangible assets are reported on the balance sheet as a noncurrent asset and include goodwill.

The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards Board (FASB).

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.

Describe the return on assets ratio and the DuPont approach for calculating return on assets.

The Nellie Company has provided the following information: Operating expenses were $115,000; Gross profit was $629,000; Cost of goods sold was $470,000; Interest expense was $17,000; Extraordinary loss was $29,000; Income tax expense was $199,000. What was Nellie's operating income?

Discontinued operations and extraordinary items are reported on the income statement as a component of income from continuing operations.

Independent auditors are advisors who analyze financial statements and other economic information to formulate forecasts and stock recommendations.

Which of the following statements is false?

External users of accounting information include decision makers such as investors, creditors, and financial analysts.

The gross profit percentage is calculated by dividing net sales by gross profit

The Willie Company has provided the following information: Operating expenses were $345,000; Income from operations was $215,000; Net sales were $1,100,000; Interest expense was $71,000; Discontinued operations loss was $87,000; Income tax expense was $58,000. What was Willie's income before taxes?

Marino Company has provided the following information: Net sales, $480,000 Net income, $24,000 Average total assets, $200,000 What is Marino's asset turnover ratio?

Intangible assets have no physical existence and no life.

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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Exam 5: Communicating and Interpreting Accounting Information

Which of the following are the criteria used to determine whether an item is extraordinary?

The essence of nonrecurring items on an income statement is that they are not useful in predicting the future income of the reporting company.

The Callie Company has provided the following information: Operating expenses were $231,000; Cost of goods sold was $376,000; Net sales were $940,000; Interest expense was $32,000; Gain on sale of a building was $76,000; Income tax expense was $151,000. What was Callie's income before taxes?

A company has paid cash to repurchase its common stock that was previously issued. Where will this cash flow be reported on the statement of cash flows?

Intangible assets are reported on the balance sheet as a noncurrent asset and include goodwill.

The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards Board (FASB).

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.

Describe the return on assets ratio and the DuPont approach for calculating return on assets.

The Nellie Company has provided the following information: Operating expenses were $115,000; Gross profit was $629,000; Cost of goods sold was $470,000; Interest expense was $17,000; Extraordinary loss was $29,000; Income tax expense was $199,000. What was Nellie's operating income?

Discontinued operations and extraordinary items are reported on the income statement as a component of income from continuing operations.

Independent auditors are advisors who analyze financial statements and other economic information to formulate forecasts and stock recommendations.

Which of the following statements is false?

External users of accounting information include decision makers such as investors, creditors, and financial analysts.

The gross profit percentage is calculated by dividing net sales by gross profit

The Willie Company has provided the following information: Operating expenses were $345,000; Income from operations was $215,000; Net sales were $1,100,000; Interest expense was $71,000; Discontinued operations loss was $87,000; Income tax expense was $58,000. What was Willie's income before taxes?

Marino Company has provided the following information: Net sales, $480,000 Net income, $24,000 Average total assets, $200,000 What is Marino's asset turnover ratio?

Intangible assets have no physical existence and no life.

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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